Sensex And The PM

WHICH prime minister do the stock exchanges want? As the Lok Sabha elections results started rolling in, the Bombay Stock Exchange Sensitive Index (Sensex) appeared totally unsure which way to go. On March 2, as news of early gains by the BJP alliance in Tamil Nadu flashed across television screens across the nation, the Sensex leaped by 150.39 points to hit 3,772.61, in the belief that India would at last get a stable government with BJP and allies ending up close to 270.

But after trading closed for the day, the full impact of the results from Maharashtra started sinking in. As BJP and Shiv Sena headed for a rout in the state, punters sold heavily, and on March 3, the Sensex dropped by 126.61. Since then, as the nation found itself staring at a Parliament bisected right down the middle, the Sensex has been drooping. On March 5, when the Sensex dropped by 29.31 and it became more or less certain that neither BJP nor the Congress-UF combine would be able to provide the sort of stability that the Indian economy has been seeking for some time now, Outlook spoke with the men in the thick of the fray: the stockbrokers. "Stable government" was out, what about "able prime minister"? We asked a dozen leading brokers on the Bombay Stock Exchange a simple question: "If X became Prime Minister, where will the Sensex be six months from now?"

These are the results:

Brokers are almost unanimous that if Manmohan Singh makes it to the PM's chair, the markets will turn really bullish. FIIs will pump in money, and even the small investor may return to the bourses. Motilal Oswal, MD of Motilal Oswal Securities, pegs the Sensex at 4,800 six months from now, if Singh is at the helm. "Singh supports liberalisation," he says blandly. But Oswal is among the most bullish of BSE brokers. He sees the Sensex at 4,300 if Vajpayee, Sharad Pawar or Madhavrao Scindia become Prime Minister.

Among others who share his optimism is Nikunj Doshi, research head of Ventura Security. With a difference. He sees Vajpayee taking the Sensex to 4,500, Singh and Pawar to 4,400. But is sceptical about Scindia: "Pawar and Singh are popular pro-market capitalists, but Scindia's popularity is low, which could lead to an unstable government." He still gives the prince of Gwalior 4,000. Says Sanjay Aggarwal, CEO, Lloyds Securities. "Scindia doesn't have a track record. "

What is the picture that emerges if one breaks up the brokers' responses into BJP, Congress and UF? BJP is easy, as there's no dichotomy about who the BJP prime minister will be. The average of all the scores that the brokers have given Vajpayee is 4,150. So, optimism, in spite of the confusion that a BJP government propped up precariously by unreliable allies could cause. Is this a reflection of a "things can't get worse" mentality, or is it something else? Only one broker sees the Sensex dipping if India has a Vajpayee-led government. Vivek Mahajan, chief dealer of IIT Investrust, predicts the Sensex will fall to between 3,500 and 3,600 in six months if the BJP comes to power. The reasons: BJP's anti-transnational corporation statements and the noises it's making about a lock-in period for FII investments. "Vajpayee is investor-friendly," feels Rohit Ajmera, vice-president, Prabhudas Lilladher, "but he will have to depend on his allies too much to run the government." Mahajan is the most bearish of all the brokers we spoke to. He sees the Sensex stagnating or dipping whoever becomes PM. Only for Manmohan Singh does he see the index rise to between 3,800 and 4,000.

IF we take the average of the scores achieved by Singh, Pawar and Scindia as representative of how the stockmarkets regard the possibility of a Congress government, we get a figure of about 4,050 for the Sensex six months from now. That's 100 points below the BJP score. However, the Congress may be at a mathematical disadvantage, as Manmohan Singh's high score—4,250—is dragged down by Pawar (4,000) and Scindia (3,850). If BJP had several candidates, like L.K. Advani or Murli Manohar Joshi, its score could have dipped. "Congress has a strong manifesto, encouraging FII investments, opening up of the financial sector, moving to full convertibility of the rupee," says Ajit Sanghvi, director, Malini Securities.

The people the stockmarkets are truly deeply suspicious of: the UF and the Left Front. If Mulayam becomes PM, the Sensex could drop sharply to 3,400. Oswal, in fact, sees it going down to 3,200.Jyotibabu clocks in at 3,560, higher than Mulayam but lower than the current Sensex level. Says A.B. Nagar, chief executive, OFL Securities: "The stability that a UF government can provide is questionable. If Mulayam Singh Yadav or Jyoti Basu become PM, there will definitely be a drop in the index." The only ray of hope: the immensely unlikely event of P. Chidambaram getting the job. Nagar feels Chidambaram as PM could take the Sensex to 4000, but that's still 200 lower than what he expects if Manmohan Singh or Vajpayee become PM: "Singh has proven his capabilities through his policies which have been favourable for industry and the capital markets, and has a clean image; Vajpayee is a balanced person and a good administrator. He will move towards liberalisation and favourable policies." But B. Subodh, MD, R.K. Chari Stockbroking, is cautious about a Vajpayee government: "If the government sticks to swad-eshi and anti-TNC stances, it will affect sentiments."

Chidambaram gets an interesting score from Doshi of Ventura Securities. He sees the Sensex rising to 3,850 as soon as Chidambaram becomes PM, but, sees it falling to 3,800 after six months. This could be cynicism about whether Chidambaram will ever manage to deliver on the hopes he always raises. Lancelot D'Cunha, vice-president, Lexicon Finance, shares Doshi's views, pegging the index at 3,750 six months after Chidambaram moves into the PM's office. "The government could turn out to be unstable," he says. Agrees Subodh: "If Chidambaram becomes PM, the market will move up initially, but later sustain at 4,200. " But overall, Chidambaram is seen by the broking community as the best person for the Sensex, after Manmohan Singh and Vajpayee.

What about the current Congress frontrunner, the lion of Mahar-ashtra? Opinions vary. "In a Congress-UF government, he will be just another Deve Gowda or Inder Kumar Gujral," says Subodh. Nagar disagrees. "Pawar is very acceptable," he says. "He is a proven administrator and will carry forward the right policies." "Liberalisation will move into an upward trajectory, Pawar can provide a stable government," says Nemish Shah, director, Enam Securities. "He's dynamic and pro-domestic industry," agrees Mahajan.

The bottomline? Market players are keeping their fingers crossed so that India isn't led by the UF again. As far as a BJP-led or a Congress-led government goes, they seem comfortable with either, and see life returning to the stockmarkets. Clearly, the bourses want to forget the men who ruled India for the last 18 months.